What is your understanding of dividends and yields?
- Thread starter Caseyjones
- Start date
Dividends are the amount that a company pays out to its shareholders. Yields, on the other hand, are the rate at which these dividends are paid. A high dividend yield means that you're getting more for your money than other investments, while a high yield generally means that you're earning more interest than with other investments.
This answer applies to real life situations in two ways: firstly, when you invest in stocks or bonds (which are both types of debt instruments), you receive dividends from them. Secondly, if you own an annuity or bond fund (which are also types of debt instruments), the interest payments made by those investments are considered dividends.
I guess dividends and yields are related in the sense that they both rely on the same underlying principle: return on investment. A dividend is what you get from an investment if you own shares of a company or fund. For example, if you invest $10 in [company name], you get a $1 dividend at the end of every quarter (or whatever interval they choose). The amount of your dividend depends on how well your company did that quarter, and will be calculated based on its profit after tax.
A yield is what you get from an investment if you don't own shares of a company or fund, but instead own bonds issued by it. Bonds are essentially loans that companies give out to investors so they can borrow money for projects or other expenses. Bonds generally pay interest at regular intervals over their lifetime—so if you buy a bond for $100 today and hold it for five years until maturity, at which point it pays back $110 to the holder upon maturity at 10% interest annually (and assuming no inflation during this time), then your annual yield would be 10%.
A yield is what you get from an investment if you don't own shares of a company or fund, but instead own bonds issued by it. Bonds are essentially loans that companies give out to investors so they can borrow money for projects or other expenses. Bonds generally pay interest at regular intervals over their lifetime—so if you buy a bond for $100 today and hold it for five years until maturity, at which point it pays back $110 to the holder upon maturity at 10% interest annually (and assuming no inflation during this time), then your annual yield would be 10%.